Competitors and Competition
The analysis of likely competition is part of the external environment research typically undertaken by a proposed new entrant in to a marketplace.
Coupled with a study of the market itself, gathering information on competitors may highlight the chances of a new business having any success in penetrating the industry and making a significant impression.
Barriers to Entry
A few competitors who have large market shares might suggest that there might be barriers to entry operating in the industry. These could consist of a lock on distribution channels, production capacity, financial strength and backing and exclusive contracts with a number of main customers.
Unless the new start-up business has the resources to match these competitor strengths or has realistic plans to overcome them, then they would be unlikely to make any significant inroads in to the market.
In such a situation, being second best would likely result in a disproportionately adverse loss making and resource wasting venture.
Copycat vs. Innovation
Competition analysis can enable researchers to gain insights as to what makes businesses succeed or fail in a given market. The choice then faced is one of whether to attempt to copycat a successful enterprise or whether to produce an innovative business which seeks to outperform the current champions.
In some cases, the best course of action might be to adopt a portion of both strategies. It might not be feasible to mimic or create an exact replica of an existing business which will almost certainly contain elements of the management’s “personality”.
Similarly, the market might not be ready for a brand new innovative offering which may, in any case, be costly to develop.
Subject to trademarks and patents, there would then be little to prevent the competition from themselves evoking a copycat strategy encompassing these new features. The market would, in all essence, retain its status quo.